The pure surplus income flow, as the monetary correlate of expansionary capital investment, is a normal and good element in the current, purely dynamic, economic process. It is not to be resented or envied. Nor is it’s achievement to be a criterion of success when it does not exist.
Pure surplus income may be defined for present purposes as a fraction of total surplus income. This fraction will be denoted by the symbol v, where v is the fraction of surplus expenditure that goes to new fixed investment. … Thus in each interval the rate of surplus expenditure E” consists of two parts: one part, (1-v)E”, goes to the replacement and maintenance of old fixed investment; the other part, vE”, goes to new fixed investment. ¶Now, when I” is keeping pace with E”, so that (D”-s”I”) is zero, one may make a parallel distinction in surplus income, naming (1-v)I” as ordinary surplus income and vI” as pure surplus income. This pure surplus income is quite an interesting object. When v is greater than zero, it is a rate of income over and above all current requirements for the standard of living, since that is provided by I’, and as well over and above all real maintenance and replacement expenditure, since that is provided by (1-v)I”. Thus one may identify pure surplus income as the aggregate rate of return upon capital investment: entrepreneurs consider that they are having tolerable success when they are not merely “making a living,” no matter how high their standard of living, and not merely obtaining sufficient receipts to purchase all the equipment necessary to overcome obsolescence, but also receiving an additional sum of income which is profit in their strong sense of the term. [CWL 15, 146]
Π”Κ”Total surplus = π”α”Κ”Expansionary + π”α”Κ”R&M to self
vΠ”Κ”Pure Surplus and π”α”Κ”Expansionary would be mutually determined and determining.
From another viewpoint, pure surplus income in a given period is given by ΣFi= vI” = (π”α”Κ”)Expansionary,where v represents the pure surplus percent of total surplus income (ordinary-plus-pure). Thus, prescinding from trade surpluses and government deficits and transfers from or to the redistributive function, we have for Gross Domestic Functional Flows:
GDFF = P’Q’ + Π’’Κ’’= (p’a’Q’Basic) + (p”a”Q”Repair and Maintenance) + (π”α”Κ”)Expansionary + π”α”Κ”R&M to self
In the normative circulation of payments, and prescinding from normal brief circulatory lags, operative final payments, P’Q’ + Π’’Κ’’,equal operative initial payments, (p’a’Q’Basic) + (p”a”Q”Repair and Maintenance) + (π”α”Κ”)Expansionary + π”α”Κ”R&M to self
Also, within the superstructure of deduced relations, we have the expression for what we call the pure-surplus-income ratio:
Where v is the fraction of total current surplus income dedicated to current expansion rather than to maintenance of existing capacity, and w = I”/(I’+I”), the ratio of total surplus income over total income.
This pure-surplus-income ratio, normatively ≥ zero, rises from zero to a peak and returns to zero. Its slope is normatively positive, zero at the peak, and then negative through the phases of a long-term expansion. This ratio equals zero in a static phase; in the expansion of the ideal pure cycle, it rises, falls, and vanishes
Finally, assuming continuity, the differential equation giving the general rule of change of the pure surplus income ratio in a long-term expansion would be:
 We may pause to note that Lonergan’s precise locating of the different points of time at which v, w, and f reach their maximum involves his carefully relating the functional flows of payments to the functional flows of the goods and services in the structure and temporality of the productive process. His identifications are well understood, well presented, and eminently explanatory; he does not choose willy nilly; he does not wing it.
Pure surplus income is intrinsic to the process and intrinsically good. It is both necessary and endogenous to the process. We have called it macrodynamic interest and included it in a treatment of the many-meanings term “interest.”.
Pure surplus income is not to be a response to the Central Bank’s actions, rather it is a normal function of invention, innovation and entrepreneurial effectiveness. Its occurrence is normal and inevitable in an expanding economy. It is an element of the immanent intelligibility of the process. It is an element of the formal cause of the process.
In contrast, the financial analyst is interested in a microeconomic process, e.g. microeconomic return on investment in an individual project or for an individual proprietary firm. We and he employ the same word“return” but, in macroeconomic dynamics we consider a current returning while he considers future flows associated with historic investments. We say dvI”/dt or ΔvI”/Δt in a system of equilibrated aggregated current velocities and accelerations. He speaks about present value: PV = Σ(In/(1 + i)n, the discounted present value of discrete future cash flows. We, like Newton and Einstein seek a generalization applicable to any and all particular situations. He seeks the present value of a particular project.
There is a sense in which one may speak of the fraction of basic outlay that moves to basic income as the “costs” of basic production. It is true that that sense is not at all an accountant’s sense of costs; for it would include among costs the standard of living of those who receive dividends but would not include the element of pure surplus in the salaries of managers; worse it would not include replacement costs, nor the part of maintenance that is purchased at the surplus final market………..But however remote from the accountant’s meaning of the term “costs,” it remains that there is an aggregate and functional sense in which the fraction…….is an index of costs. For the greater the fraction that basic income is of total income (or total outlay), the less the remainder which constitutes the aggregate possibility of profit. But what limits profit may be termed costs. Hence we propose ….to speak of c’O’ and c”O” as costs of production, having warned the reader that the costs in question are aggregate and functional costs…. [CWL 15 156-57]
[ΣFi] = [v I” + (Deficit’gov/cons+ Deficit”gov/cons) + (Surplus’exim+Surplus”exim)]
ΣFi in the second and third equations equals the sumof expansionary investment income, plus basic and surplus government deficit, plus basic and surplus foreign-trade surplus. That is to say, consumers are paid and expend only what is needed to cover the costs of domestically-purchased consumer goods and maintenance of the capacity to produce these goods. If the government borrowed to finance its own or its constituents’ basic purchases, it would boost P’Q’, but this extra money would flow to entrepreneurs through higher prices and would be used to purchase the very debt instruments issued by the government to finance the deficit. If there were a foreign-trade surplus, domestic employees would be paid only enough to cover their purchases in the domestic market, with the rest of their production being bought by foreigners; i.e. the rest is non-domestic consumption, whose monetary correlate is pure surplus income.